Disclosure Obligation under Regulation 7(1A) Clarified by Tribunal

The Tribunal held that the obligation to disclose under regulation 7(1A) arises when an acquirer, along with persons acting in concert, sells shares exceeding 2% of the target company's share capital. However, as regulation 7(2) does not mandate disclosure of share sales, the appellants could not be penalized for not disclosing sales under regulation 7(1A) in conjunction with regulation 7(2). The penalty imposed by SEBI was deemed unjustified, and all appeals were disposed of without costs.

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Issues Involved:
1. Obligation to make disclosure under regulation 7(1A) of the Takeover Regulations, 1997.
2. Interpretation of the term "acquirer" under regulation 7(1A).
3. Applicability of regulation 7(2) to the sale of shares.
4. Delay in issuing the show cause notice.
5. Justification of the penalty imposed by SEBI.

Detailed Analysis:

1. Obligation to Make Disclosure Under Regulation 7(1A):
The appellants were held liable for failing to disclose the sale of shares exceeding 2% of the target company's share capital to the stock exchanges, as required under regulation 7(1A) of the Takeover Regulations, 1997. The Tribunal noted that the appellants, as promoters acting in concert, sold shares aggregating more than 2% and made the required disclosure to the target company but not to the stock exchanges. The Tribunal emphasized that the obligation to disclose under regulation 7(1A) arises when the aggregate sale by the acquirer together with persons acting in concert exceeds 2%.

2. Interpretation of the Term "Acquirer" Under Regulation 7(1A):
The appellants contended that the term "any acquirer" refers to an individual acquirer and not to a group acting in concert. The Tribunal rejected this argument, stating that the definition of "acquirer" under regulation 2(1)(b) includes persons acting in concert. Therefore, the disclosure obligation under regulation 7(1A) is triggered when the aggregate sale by the acquirer and persons acting in concert exceeds 2%. The Tribunal clarified that the term "acquirer" in regulation 7(1A) refers to both individual acquirers and those acting in concert.

3. Applicability of Regulation 7(2) to the Sale of Shares:
The appellants argued that regulation 7(2) does not contemplate disclosure of the sale of shares, only the acquisition. The Tribunal agreed, noting that while regulation 7(1A) requires disclosure of sales, regulation 7(2) does not provide for disclosure obligations arising from the sale of shares. The Tribunal concluded that SEBI's amendment to regulation 7(2) did not include provisions for the sale of shares, thus the appellants could not be penalized for failing to disclose sales under regulation 7(1A) read with regulation 7(2).

4. Delay in Issuing the Show Cause Notice:
The appellants contended that the delay of more than eight years in issuing the show cause notice rendered the proceedings invalid. The Tribunal dismissed this argument, referencing the Supreme Court's ruling that delay alone does not invalidate proceedings unless there is a statutory time limit. The Tribunal found no fault with SEBI's actions, as the show cause notice was issued promptly after SEBI became aware of the non-compliance.

5. Justification of the Penalty Imposed by SEBI:
The Tribunal examined whether the penalty imposed by SEBI was justified. Given the lack of provision in regulation 7(2) for the disclosure of sales under regulation 7(1A), the Tribunal held that the appellants could not be penalized for failing to make such disclosures. The Tribunal noted that SEBI should have ensured that regulation 7(2) included provisions for the sale of shares when amending it. Consequently, the penalty imposed on the appellants was deemed unsustainable.

Conclusion:
The Tribunal concluded that the obligation to make disclosure under regulation 7(1A) arises when an acquirer, together with persons acting in concert, sells shares aggregating 2% or more of the target company's share capital. However, due to the lack of provision in regulation 7(2) for the disclosure of sales, the appellants could not be penalized for failing to disclose sales under regulation 7(1A) read with regulation 7(2). All appeals were disposed of with no order as to costs.

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